SEC Charges Merrill Lynch and Parent Company for Failing to File Suspicious Activity Reports

The Securities and Exchange Commission (SEC) has announced charges against Merrill Lynch, Pierce, Fenner & Smith Incorporated and its parent company BAC North America Holding Co. (BACNAH) for their failure to file numerous Suspicious Activity Reports (SARs) between 2009 and late 2019. Merrill Lynch has agreed to pay a $6 million penalty to settle the SEC charges. Additionally, in a parallel action, Merrill Lynch will pay a separate $6 million fine to settle charges brought by the Financial Industry Regulatory Authority (FINRA).

According to the SEC’s order, BACNAH was responsible for developing and implementing Merrill Lynch’s SAR policies, as well as filing the SARs on behalf of Merrill Lynch. However, for a period of ten years, BACNAH incorrectly used a $25,000 threshold instead of the required $5,000 threshold for reporting suspicious transactions or attempted transactions involving potential criminal activity through Merrill Lynch that could not be identified. This resulted in Merrill Lynch’s failure to file hundreds of mandatory SARs.

Katharine E. Zoladz, Co-Acting Regional Director of the Los Angeles Regional Office, emphasized the critical obligation of broker-dealers to report suspicious activity in their accounts. She stated, “Merrill Lynch and BACNAH did not file hundreds of Merrill Lynch SARs because they failed to comply with one of the most basic requirements for a SAR program.”

The SEC’s order concludes that Merrill Lynch violated the books and records provisions of Section 17(a) of the Securities Exchange Act of 1934, along with Rule 17a-8, and that BACNAH was responsible for these violations. Without admitting or denying the SEC’s findings, Merrill Lynch and BACNAH have agreed to cease and desist from committing or causing further violations of these provisions. Merrill Lynch will also receive a censure and pay the $6 million civil penalty.

The SEC’s investigation was conducted by the staff at the Los Angeles Regional Office under the supervision of Finola H. Manvelian. The SEC acknowledges the assistance provided by FINRA in this matter.